Tangible assets: while many industries have suffered the double whammy of world recession and fall-out from Sept. 11, the real estate industry has continued to thrive and supply jobs - The 2002 Mid-Year Beacon Forecast: Real Estate and Construction

South Florida CEO, June, 2002 by J.P. Faber

"WHAT RECESSION?" ASKS MICHAEL Cannon, one of the leading authorities on real estate in Miami-Dade County. "As far as real estate was concerned, we didn't have a recession." In fact, says the managing director for Integra Realty Resources-AREEA-South Florida; last year posted an all-time record for real estate transactions in Miami-Dade and the region.

"The real estate industry in 2001. and. going into 2002, was the best overall year ever in South Florida real estate, with more than $40 billion in transactions in the tri-county area," says Cannon. "The shining light was housing of all types."

According to figures assembled by IRR-AREEA, there were approximately 60,000 residential transactions in Miami-Dade County in 2001, a 6.9-percent increase from the year before. That translated into $10.6 billion in deals, up from $9 billion in 2000 and $8 billion in 1999. "It's just been going up on an exponential basis, except for a couple of dips, since 1982," says Cannon.

So far, at least on the residential side, 2002 is shaping up as another banner year. One of the county's top builders of new homes, Century Builders Group, reports record closings this year. "This year is good, not only for Century, but for everybody," says chairman and CEO Sergio Pino. "Everybody is selling, and interest rates are staying down. A lot of people are moving into the area." Pino says that while Century completed 1,100 homes last year, and closed on 630 of them, this year the company expects to complete 1,200 homes and close on more than 1,000.

Charlie Martinez, CEO of Caribe Homes Corp. and the current president of the Latin Builders Association, says his company is building at a record pace, "the best we've done in 15 years. it's the same thing I'm hearing from all members of our association. Every industry has its good and bad days, and we're living in the good days."

Martinez says his main concern is whether the market will be able to absorb the growing cost of ever-scarcer land. "The prices for land are so expensive that the question is whether the market can afford to pay for the finished product." Martinez says that while new "starter" homes were priced at about $120,000 two years ago, they are now priced at closer to $160,000.

So far, however, the market is meeting the challenge, and not just for starter homes. At the other end of the spectrum -- new luxury condos -- sales and construction are also proceeding at a strong pace. The Related Group of Florida, the region's top developer of high-end condos (Miami-Dade sales in 2001: $205 million) now has eight projects underway in South Florida.

Still, Related chairman and president Jorge Perez is concerned that the underlying economy of Miami-Dade has still not sufficiently recovered, and that the future remains uncertain. "I don't know what the depth of the end buyers are," he says. "We are still seeing some out-of-towners coming in, but job growth [in Miami-Dade] is not enough. When you don't have that, then everything is based on outsiders coming in to buy second homes. That's a scary thought, because you never know when that second-home buyer will disappear." Perez says he is also concerned with over-building and oversupply in the high-end condo market.

While that may or may not impact sales over the next few years, in the interim, construction is proceeding on more than two dozen high-rise condo projects in Miami-Dade. Construction firm Miller & Solomon, which is building Peninsula and Hamptons South, two luxury condos in Aventura, reports that it has signed contracts for $215 million in jobs since the start of the year. "We are doing more than double the previous year," says Larry Kibler, president and co-owner of the firm. Kibler estimates he's added roughly 30 supervisors and 300 laborers this year to handle the increased work load, which also includes work for educational institutions such as the Wayne Huizenga School of Business at Nova Southeastern University.

The Beacon Council reports that total construction employment in April 2002 had returned to April 2001 levels, after slipping in February 2002 to 1,700 fewer workers than in February 2001. "Construction jobs experienced a record year in 2001," according to the Beacon's Spring 2000 quarterly report, a hard act to follow.

Nonetheless, construction has slacked off in the industrial/warehouse sector, especially in the Airport West area. With international trade coming off a bad year, and a lot of speculative building in the last few years, occupancy and rates are both down -- though not severely.

"The year 2000 was the last great year," says Ed Easton, chairman and CEO of the Easton Group, the area's top landlord, controlling 4 million square feet of industrial and warehouse space in Airport West. "Last year was soft and 2002 looks soft, though some things are picking up." Easton reports that vacancies in the area have gone from 6 percent to 10 percent, while rates have fallen from about $7 a square foot to $6.50 a square foot.

"The bigger companies are holding their space, but the smaller ones are cutting back and there's a lack of new companies coming in. Overall demand is now flat," says Easton. "The good news is that there is no speculative supply." Easton expects 2003 to show some net absorption in the area, with a strong market by 2004.